In that location are right and wrong reasons to sell a stock. While information technology's by and large a bad idea to sell a stock simply because its toll increased or decreased, other situations perfectly justify placing one or more sell orders.

Let's delve into several practiced reasons for selling a stock, when to sell stock for a profit or loss, and which circumstances do non justify selling a stock.

Green button labeled Sell on a keyboard

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Reasons to sell a stock

Here'south a rundown of v scenarios that can justify selling a stock:

1. Your investment thesis has inverse.

The reasons why y'all bought a stock may no longer apply. Examine why you bought a stock in the first identify and ask yourself if those reasons are nevertheless valid. You should have a reason -- or an investment thesis -- for each of your stock investments other than just wanting to make coin.

If something fundamental well-nigh the company or its stock changes, that tin be a practiced reason to sell. For example:

  • The company's market share is falling, maybe considering a competitor is offering a superior product for a lower price.
  • Sales growth has noticeably slowed.
  • The company's management has inverse, and the new managers are making reckless decisions such as bold too much debt.

Of course, this listing isn't exhaustive. If something essentially changes that contradicts your investment thesis, that'southward one of the all-time reasons to sell.

2. The visitor is existence acquired.

Another potentially practiced reason to sell is if a visitor announces it has agreed to be acquired. Later on an conquering is appear, the stock toll of the company being acquired typically rises to a level shut to the agreed-upon purchase price. Since further upside potential tin be quite express, it may be wise to lock in your gains shortly later the conquering announcement.

Specifically, the way the visitor is being acquired affects whether selling your stock is the right determination. A company can be acquired in cash, stock, or a combination of the two:

  • For all-greenbacks acquisitions, the stock toll typically quickly gravitates toward the acquisition price. Merely if the deal is not completed, then the company's share price could come crashing back down. It's rarely worth holding on to your shares long afterwards the proclamation of an all-cash acquisition.
  • For stock or cash-and-stock deals, your decision to hold or sell should be based on whether you have any want to be a shareholder in the acquiring company. For example, Slack Technologies (NYSE:WORK) recently agreed to exist acquired past Salesforce (NYSE:CRM) in a cash-and-stock deal. Slack shareholders who don't desire to become Salesforce investors would exist well advised to cash out.

three. Yous need the money or presently will.

Information technology's generally a best practice not to invest in the stock market with whatsoever money you expect to need within the side by side few years. But if yous need the money, that's certainly a valid reason to sell.

Perhaps you want to purchase a house and sell some stock to cover the down payment. Or you may have children who plan to attend college in a few years, and you desire to convert your stock holdings into more secure investments such every bit certificates of deposit (CDs).

4. You lot need to rebalance your portfolio.

Your investment portfolio tin can become unbalanced in one or more means. That is why periodically rebalancing your portfolio -- which may involve selling some stock -- is necessary for about investors. These are two of the well-nigh common circumstances preceding a stock sale:

  • Owning a high-performing stock: If you ain shares that take significantly increased in cost, your position in the company may represent a large portion of the value of your portfolio. While this is a good problem to have, y'all may not be comfortable with having so much of your money invested in a unmarried company and choose to sell office of your stock.
  • Seeking to reduce your stock exposure: As you go closer to retirement, it's smart to gradually reduce your portfolio'due south stock holdings in favor of safer investments such as bonds. Ane popular dominion of pollex is to subtract your age from 110 to determine the percentage of your portfolio that should exist invested in stocks. If your portfolio seems too stock-heavy, then selling some stock to reallocate your resources tin exist a skillful conclusion.

5. You identify opportunities to amend invest your money elsewhere.

In a perfect world, yous'd always have spare greenbacks to invest for every time you lot identify an attractive investment opportunity. Since that's probably not the case, you may determine to sell stock to invest the greenbacks differently.

Permit's say you find an incredible buying opportunity for one of your favorite stocks and decide you want 10% of your portfolio to be allocated to this investment. If you don't happen to have 10% of your portfolio sitting in cash, yous may decide to sell some shares of another stock or exchange-traded fund (ETF) you ain to free upward some uppercase. There's likely aught wrong with the other stock or ETF, but recognizing an excellent long-term opportunity elsewhere can be a valid reason to sell.

When to sell stocks for profit

Any of the above are good reasons to sell a stock for a profit. Having earned a profit from an investment tin can further justify selling the stock to pay for a major buy, your living expenses in retirement, or as role of your portfolio allocation strategy.

But don't sell a stock for profit just because the price increased. Doing that would be falling into the trap of assertive that information technology'southward a skilful idea to "take some coin off the tabular array" if a stock gains value.

When to sell stocks at a loss

Similarly, it'southward usually a bad thought to sell a stock only because its price decreased. At the same fourth dimension, though, sometimes yous but accept to cut your losses on a stock position. It's important to not allow a drib in a stock's toll prevent you from selling.

As legendary investor Warren Buffett says, "The most of import thing to do if you discover yourself in a hole is to stop digging." If your original reason for buying a stock no longer applies, or if you were just plain wrong about the visitor, and then selling at a loss rather than continuing to hold may be your best option.

When not to sell a stock

It's important to clearly know when non to sell a stock. Here's a list of some of the situations in which information technology's inadvisable to sell your shares:

1. Don't sell a stock just because its price increased. Winning stocks increase in price for a reason, and they also tend to keep winning.

2. Don't sell a stock just considering its price decreased. Every investor wants to buy low and sell loftier. Selling a stock just because its price fell is literally doing the exact contrary.

3. Don't sell stock but to save money on taxes. While a tax strategy known every bit taxation loss harvesting tin can reduce your taxable capital gains by incurring losses on unprofitable stock positions, it'due south nonetheless a bad idea to sell stocks just to lower your taxes. Tax loss harvesting tin be a smart tax-saving strategy, but simply if y'all are choosing to sell a losing stock for other valid reasons.

The Motley Fool sells stock regularly, likewise

While The Motley Fool always approaches investing with a long-term perspective, that doesn't mean we simply advise stocks to buy. We regularly give "sell" recommendations to our members and often for 1 of the reasons described above. There can be several valid reasons to sell a stock, and many long-term-focused investors frequently have reasons to offload parts of their holdings.